Securities and Exchange Board of India

In 1988 the Securities and Exchange Board of India was established by the Government
of India through an executive resolution, and was subsequently upgraded as a fully
autonomous body (a statutory Board) in the year 1992 with the passing of the Securities
and Exchange Board of India Act (SEBI Act) on 30th January 1992. In place of
Government Control, a statutory and autonomous regulatory board with defined
responsibilities, to cover both development & regulation of the market, and independent
powers has been set up. Paradoxically this is a positive outcome of the Securities Scam.

The basic objectives of the Board were identified as:

• to protect the interests of investors in securities;

• to promote the development of Securities Market;
• to regulate the securities market and
• for matters connected therewith or incidental thereto.

Since its inception SEBI has been working targetting the securities and is attending to
the fulfillment of its objectives with commendable zeal and dexterity. The improvements
in the securities markets like capitalization requirements, margining, establishment of
clearing corporations etc. reduced the risk of credit and also reduced the market.

SEBI has introduced the comprehensive regulatory measures, prescribed registration

norms, the eligibility criteria, the code of obligations and the code of conduct for different
intermediaries like, bankers to issue, merchant bankers, brokers and sub-brokers,
registrars, portfolio managers, credit rating agencies, underwriters and others. It has
framed bye-laws, risk identification and risk management systems for Clearing houses of
stock exchanges, surveillance system etc. which has made dealing in securities both
safe and transparent to the end investor.

However the Securities Contracts (Regulation) Act, 1956 (SCRA) required amendment
to include "derivatives" in the definition of securities to enable SEBI to introduce trading
in derivatives. The necessary amendment was then carried out by the Government in
1999. The Securities Laws (Amendment) Bill, 1999 was introduced. In December 1999
the new framework was approved.
How SEBI came into picture
The World Bank and the International Monetary Fund (IMF) have introduced a
benchmark i.e., Financial Services Assessment Programme (FSAP) to strengthen the
monitoring of financial systems in the context of the IMF’s bilateral surveillance and the
World Bank’s financial sector development work. The FSAP is designed to help
countries enhance their resilience to crisis and cross-border contagion, and to foster
growth by promoting financial system soundness and financial sector diversity. The
mission of SEBI is to make India as one of the best securities market of the world and
SEBI as one of the most respected regulator in the world. SEBI endeavors to achieve
the standards of IOSCO/FSAP. Amendments will be required to be made in the
Securities Laws especially the SEBI Act, which will facilitate India and SEBI to achieve
above objective.

Functions and responsibilities

SEBI has to be responsive to the needs of three groups, which constitute the market:

 the issuers of securities

 the investors
 the market intermediaries.

SEBI has three functions rolled into one body quasi-legislative, quasi-judicial and quasi-
executive. It drafts regulations in its legislative capacity, it conducts investigation and
enforcement action in its executive function and it passes rulings and orders in its judicial
capacity. Though this makes it very powerful, there is an appeals process to create
accountability. There is a Securities Appellate Tribunal which is a three-member tribunal
and is presently headed by a former Chief Justice of a High court - Mr. Justice NK Sodhi.
A second appeal lies directly to the Supreme Court.

SEBI has enjoyed success as a regulator by pushing systemic reforms aggressively and
successively (e.g. the quick movement towards making the markets electronic and
paperless rolling settlement on T+2 basis). SEBI has been active in setting up the
regulations as required under law.
SEBI has also been instrumental in taking quick and effective steps in light of the global
meltdown and the Satyam fiasco. It had increased the extent and quantity of disclosures
to be made by Indian corporate promoters. More recently, in light of the global melt
down, it liberalised the takeover code to facilitate investments by removing regulatory
strictures. Other functions can be

A) review of the market operations, organizational structure and administrative

control of the exchange

 All stock exchanges are required to be Body Corporates

 The exchange provides a fair, equitable and growing market to investors.

 The exchange’s organisation, systems and practices are in accordance

with the Securities Contracts (Regulation) Act (SC(R) Act), 1956

B) Registration And Regulation Of Mutual Funds, Venture Capital Funds &

Collective Investment Schemes

 AMFI-Self Regulatory Organization-'promoting and protecting the interest

of mutual funds and their unit-holders, increasing public awareness of
mutual funds, and serving the investors' interest by defining and
maintaining high ethical and professional standards in the mutual funds
industry'.

 Every mutual fund must be registered with SEBI and registration is

granted only where SEBI is satisfied with the background of the fund.

 SEBI has the authority to inspect the books of accounts, records and
documents of a mutual fund, its trustees, AMC and custodian where it
deems it necessary

 SEBI (Mutual Funds) Regulations, 1996 lays down the provisions for the
appointment of the trustees and their obligations

 Every new scheme launched by a mutual fund needs to be filed with SEBI
and SEBI reviews the document in regard to the disclosures contained in
such documents.

 Regulations have been laid down regarding listing of funds, refund

procedures, transfer procedures, disclosures, guaranteeing returns etc

 SEBI has also laid down advertisement code to be followed by a mutual

fund in making any publicity regarding a scheme and its performance

 SEBI has prescribed norms / restrictions for investment management with

a view to minimize / reduce undue investment risks.
  SEBI also has the authority to initiate penal actions against an erring MF.

 In case of a change in the controlling interest of an asset management

company, investors should be given at least 30 days time to exercise their
exit option.

C) Promoting & Regulating Self Regulatory Organizations

 In order for the SRO to effectively execute its responsibilities, it would be

required to be structured, organized, managed and controlled such that it
retains its independence, while continuing to perform a genuine market
development role

D) Prohibiting Fraudulent And Unfair Trade Practices In The Securities Market

 SEBI is vested with powers to take action against these practices relating
to securities market manipulation and misleading statements to induce
sale/purchase of securities.

E) Prohibition Of Insider Trading

I) Stock Watch System, which has been put in place, surveillance over
insider trading would be further strengthened.

F) Investor Education And The Training Of Intermediaries

I) SEBI distributed the booklet titled “A Quick Reference Guide for Investors”
to the investors

II) SEBI also issued a series of advertisement /public notices in national as

well as regional newspapers to educate and caution the investors about
the risks associated with the investments in collective investment schemes

III) SEBI has also issued messages in the interest of investors on National
Channel and Regional Stations on Doordarshan.

G) Inspection And Inquiries

H) Regulating Substantial Acquisition Of Shares And Take-overs

I) Performing Such Functions And Exercising Such Powers Under The Provisions
Of The Securities Contracts (Regulation) Act, 1956 As May Be Delegated To It
By The Central Government;

J) Levying Fees Or Other Charges For Carrying Out The Purposes Of This Section

K) Conducting Research For The Above Purposes